India's Real Estate Demand Outpaces Institutional Investments: Report

(MENAFN- IANS) New Delhi, May 26 (IANS) Strong occupier demand in India's real estate market is increasingly outpacing institutional capital deployment, creating a widening supply gap despite an estimated $2.3 billion available as dry powder for future investments, a report said on Tuesday.

Real estate‐focused alternative investment funds recorded $14.5 billion in capital commitments between 2021 and 2025, but only $7.9 billion has been raised and $5.7 billion deployed, the report from Knight Frank India said.

The pace of institutional capital deployment remains insufficient to support supply creation, resulting in a widening gap between demand and future supply requirements.

Ongoing capitalisation rates (cap rate) across major asset classes range between 2.60 per cent and 7.75 per cent, depending on asset type, risk profile and income stability.

Office assets remain a preferred segment for institutional capital, supported by stable income visibility with cap rates of 7.25 per cent to 7.75 per cent, marginally above the 10‐year Government of India bond yield of around 6.6 per cent.

If the entire $2.3 billion of available dry powder were deployed solely to office development, it could create roughly 12.2 million square feet of new supply, meeting about 14 per cent of India's annual office demand of 86.4 million square feet recorded in 2025.

Apart from underscoring the growing gap between occupier demand and institutional capital availability, the funding data also indicates the opportunity that domestic and global capital have in India.

"The real opportunity, therefore, lies in bridging the capital gap...This imbalance is what makes India one of the most compelling real estate investment opportunities globally. Strong occupier demand, improving transparency, and maturing investment structures are creating the foundation for long-term, institutional-grade growth,” said Shishir Baijal, International Partner, Managing Director and Chairman, Knight Frank India.

The report noted that India's top eight office markets recorded 307.7 million square feet of transactions over the last five years, significantly higher than 236.1 million square feet of supply delivered in the same period.

Consequently, the market has transitioned into a demand-led cycle, with the supply-to-demand ratio declining from 1.40x in 2008 to 0.63x in 2025, the lowest level recorded to date.

A similar pattern is emerging in the warehousing sector, highlighting the challenge for Indian real estate increasingly linked to capital availability rather than occupier demand.

-IANS

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